Rest easier by knowing bank accounts protected

The rules that govern federal deposit insurance are of more than passing interest to Bill Hogle, a 61-year-old Santa Monica retiree.

More than half his wealth is tied up in certificates of deposit, and he lives on their income. He knows his money is in different accounts that make him eligible for more than $100,000 of insurance, and he's been banking on that knowledge.

But after the failure of Pasadena- based IndyMac Bank, we're all increasingly nervous.

The lure of relatively high rates paid by many of the shakiest banks -- Countrywide, Fremont and IndyMac, to name a few -- has proved too tempting as overall market interest rates have fallen.

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Hogle has nearly $200,000 in IndyMac, and he's getting differing answers about whether it's all insured.

"I finally got through on the FDIC number, explained my situation and the guy said, 'I think those (accounts) are probably insured,' " Hogle said. "Probably? I said, 'Aren't you the FDIC? Are they or aren't they?' He said he would have somebody call me back on Aug. 4."

Understanding how to set up your accounts is crucial for anyone who wants to deposit more than $100,000 in a single bank.

But getting answers on deposit insurance can prove vexing in the wake of a failure. After doggedly pursuing other FDIC officials, Hogle eventually learned his deposits were insured.

THE BASICS -- The Federal Deposit Insurance Corp., which has a $53 billion reserve and full backing of the U.S. Treasury, stands behind deposits of as much as $100,000 per person, per bank.

In the event of a bank failure, those who have less than that amount in the institution can get a check for the entire amount from the FDIC immediately.

Depositors can get significantly more insurance coverage by managing the legal ownership of their accounts.

There are five types of legal ownership of a bank account, and each is treated differently when it comes to insurance. The big differences involve accounts owned individually, jointly, as a business, as a retirement plan or as a trust.

Accounts set up under each ownership category are insured separately. You can have an individual account, a joint account, a retirement account and multiple trust accounts, and each will get up to $100,000 in coverage. However, accounts under the same ownership structure are totaled in determining coverage.

Thus, if Jane Smith has a $100,000 certificate of deposit in her name alone and shares $200,000 in a joint account with her husband, she has $200,000 in FDIC coverage because she gets $100,000 in coverage on her individual account and $100,000 in coverage for her joint interest in the second account.

However, if Jane has other joint accounts -- maybe she has an account with her daughter, Sue -- her joint interest in that account would be added to her other joint interests. If her cumulative interests in all her joint accounts exceed $100,000, any amount over that threshold would not be insured.

It's worth noting that the FDIC assumes that all joint owners have an equal interest in a joint account, so if Jane had a joint account with Sue for $100,000, the FDIC would add her half interest in that account to Jane's half interest in the $200,000 account with her husband and determine that $50,000 of her joint assets are not insured.

Business accounts can win additional and separate coverage if the business is a corporation, partnership or unincorporated association "engaged in an independent activity" -- if it wasn't just set up that way for insurance coverage.

Sole proprietorships do not get extra coverage. Assets in an account owned by a sole proprietor are added to that owner's other accounts at the bank, much like individual and joint accounts.

Trust accounts, even informal trusts, can land the owners vastly more insurance coverage. That's because the FDIC will cover as much as $100,000 per qualifying beneficiary on these accounts. In other words, if Jane has 10 qualifying beneficiaries -- say, a spouse, three kids and six grandkids -- her trust account can be insured to $1 million.

Who qualifies as a beneficiary for FDIC coverage? The owner's spouse, child, grandchild, parent or sibling. (Adopted children and grandchildren count, too.) But in-laws, cousins, nieces, nephews and friends do not.

There are two caveats: The trust must be documented, with a formal legal agreement or with simple paperwork at the bank that shows it's a "payable-on-death" account, a Totten trust or an "in-trust-for" account.

Beneficiaries must be personally named. The FDIC will assume that all beneficiaries have equal interests unless other arrangements are spelled out.

Keep in mind that even an informal trust is a legal document.

If you die, those beneficiaries are legally entitled to the money, even if your will says something different.

Many retirement accounts -- IRAs, 457 plans, self-directed 401(k)s and Keoghs -- get separate and expanded coverage of as much as $250,000 per owner. Teacher retirement plans, 403(b) accounts, do not.

ADDING IT UP -- So how much can one individual have in a single bank and be fully insured? That depends on the individual, but let's review Jane's situation.

She can have $100,000 in her account; $100,000 in an account owned by her incorporated business; $1 million in "payable-on-death" accounts, payable to her close relatives.

In addition, she can have $250,000 in her IRA. The entire $1.45 million is fully insured.

MORE INFORMATION -- Want to estimate how much you can deposit with full coverage? Use the FDIC's electronic deposit insurance calculator at www.fdic.gov/edie.

The FDIC has a 33-page booklet called "Your Insured Deposit" on its Web site, which explains the rules in detail.

In a bank failure, it can take the FDIC several days to several weeks to sort out the paperwork. In the meantime, it may give you access to only part of your account -- usually $100,000 -- so make sure you keep records of each account.